Jerusalem Kotel Panoramic

Ambassador (ret.) Yoram Ettinger, “Second Thought: a US-Israel Initiative”

According to Secretary John Kerry, “if we do not resolve the issues between Palestinians and Israelis; if we do not find a way to find peace; there will be an increasing isolation of Israel.

However, a thorough examination of Israel’s international standing reveals an increasingly splendid global integration of the Jewish state – economically, technologically and scientifically – irrespective of the Palestinian issue.

Contrary to the Kerry school of thought – and based on a reality check – the Palestinian issue has never been a core cause shaping the Middle East, a crown-jewel of Arab policymakers or the crux of Israel’s relations with Arab countries and the international community. While diplomatic talk highlights the Palestinian issue, the diplomatic, commercial and industrial walk reveals that policy-makers and the international business community do not embrace Kerry’s “Palestine First” assessment and his “Isolation Warning/Threat.”

Thus, the Turkish Statistics Institute documented an expansion of the Turkey-Israel trade balance, despite the brutal anti-Israel ideology of President Erdogan. The Institute reports a 56% export increase, to Israel, during the first five months of 2013, compared with January-May, 2012, while the imports from Israel were increased by 22% during the same period. The Israel-Turkey trade balance was $3.4BN in 2008 and exceeded $4BN in 2012.  Turkey’s requirements in the areas of industry, medicine, health, agriculture, irrigation, education, science, technology and defense – and Israel’s unique innovations in these areas – have prevailed over Erdogan’s anti-Western, anti-Israel and pro-Hamas Islamist orientation.

The London Financial Times reported: “in six hours of [Prime Minister Netanyahu’s] talks with the Chinese leadership, they spent roughly ten seconds on the Palestinian issue, while revealing an unquenchable thirst for Israeli technology.” Highlighting Israel’s intensified and diversified global integration, the China-Israel 2013 trade balance exceeded $10BN, providing a tailwind to the currently negotiated free trade agreement, and enhanced by Chinese investments in some fifty Israeli high tech companies. TheJapan Times reported the growing Japanese interest in Israeli business opportunities, tripling the number of reviews of Israeli companies.

Moreover, foreign investments in Israel catapulted in 2013, achieving a seven- year high of $12BN, including $4BN in acquisition of Israeli companies by global giants such as Google, IBM, Cisco, AOL, Facebook, Apple and EMC. Furthermore, since January 2014, Israeli companies have rised over $500MN on Wall Street.  Deloitte Touche – one of the top CPA firms in the world – crowned Israel as the fourth most attractive site for foreign investors, trailing only the USA, China and Brazil. According to the BritishEconomist Intelligence Unit, “Israel’s cluster of high tech companies, investors and incubators is enjoying a boom which has not been witnessed since the global tech bubble burst more than a decade ago.”  Neither Kazakhstan‘s billionaire Kenges Rakishev, norMexico‘s billionaire, Carlos Slim allowed the “Isolation Warning/Threat” to stop their flow of investments in Israel’s high tech sector.

In fact, Israel, the Startup Nation, has become a critical Pipeline Nation that transfers to the American high tech industry a plethora of cutting edge technologies and applications, developed by Israel’s brain power. This provides some 200 US high tech giants an edge over their global competitors, thereby contributing to US employment, research, development and exports. As stated by Microsoft’s new CEO, Satya Nadella, “The two Microsoft research and development centers in Israel constitute a strategic factor, enhancing Microsoft’s capabilities in many areas.” This was echoed by Google’s Chairman, Eric Schmidt, who also invests in Israel through his private venture capital fund, Innovation Endeavors: “Israel will have an oversized impact on the evolution of the next stage of technology.  Israel has become a high tech hub.  Israel is the most important high tech center in the world after the US.”

Unlike Secretary Kerry, Warren Buffett does have confidence in Israel’s long term viability, realizing that Israel’s economic and technological capabilities are the derivatives of Israel’s brainpower and fiscal responsibility (since 1985), independent of the Palestinian issue. Hence, on the eve of Israel’s 2006 war against Lebanon’s Hizballah, Buffett invested $4BN in an Israeli company – located next to the Lebanese border – recently expanding that investment by $2BN.  Buffett followed in the footsteps of Intel, which has invested $11BN in its four research and development centers and two manufacturing plants in Israel; IBM, which just acquired its 13th Israeli company; Motorola, which established in Israel a research center second only to its Houston center; Hewlett-Packard, which owes 55% of its 2012/3 development to its seven Israeli research and development centers; and the leading Silicon Valley venture capital funds, Sequoia, Benchmark, Greylock and Accel, which operate successful Israel-dedicated funds.

Astute observers of the Middle East – who do not subordinate reality to wishful thinking – are aware that the Arab Tsunami is not an Arab Spring; that the Arab Street in general, and Egypt in particular, are not transitioning towards democracy; that Iran is committed to the pursuit of military nuclear capabilities; that Assad has not been forsaken by Russia and Iran; and that Arab leaders are apprehensive of Palestinian subversion and terrorism.

Likewise, astute investors have realized that the ongoing wars and terrorism, challenging Israel since 1948, have been but bumps on the road of Israel’s unprecedented surge and integration into the global economy and technology, now bolstered by Israel’s Leviathan-size offshore natural gas explorations.

1.  A record of 5.3 million tourists in Israel in 2013.

2.  A record of $83.2BN foreign exchange reserves reflects the strength of Israel’s Shekel, while the currencies of the emerging markets plummet.

3.  A record of $2.3BN invested in 662 Israeli startups in 2013 (21% above 2012), according to KPMG and IVC (Globes, January 23, 2014).

4.  Over 250 multinational research & development centers operate in Israel (Globes, February 13).

5.  “Funds from the US, Europe and China are showing interest in dozens of Israeli companies that will be forced on to the auction block by Israel’s efforts to increase competition…. The sale [of dominant Israeli companies] is required by a law passed in December, 2013 to loosen the grip conglomerates have on the economy…. [Israel’s economic] growth is projected to outpace both the US and the euro area this year and next.  The stability of the Israeli economy, and its fundamentals, make it attractive to foreign investors…. You are buying not because of a crisis in Israel, but because there is a desire to boost competition (Bloomberg, February 4, 2014, Alisa Odenheimer and Sharon Wrobel).”

6.  Australia’s Woodside Petroleum, Ltd. will join explorations in Israel’s Leviathan offshore natural gas field, accepting a Memorandum of Understanding – to be completed by March 27 – which will provide the Australian giant with a 25% equity for $2.7BN (Globes Business Daily, February 10, 2014).  Norway is increasingly interested in Israel’s natural gas market.  Stavanger University concluded an agreement, in the energy-engineering area, with Israel’s Technion (Globes January 27). Cyprus negotiates a $3BN natural gas import from Israel.

7.  Intel’s CEO, Brian Krzanich on Intel’s 40 year operations in Israel: “It’s a microcosm of Intel, a complete Intel within a single country. It’s about the only place where you have a complete cross-section of the company in one country.”  Intel Israel features the largest research & development center outside the US;  $10.8BN investments and a $1BN annual cost (during the last decade) on sourcing goods and services; 9,800 employees (mostly research & development), including 800 hired in December 2013; $35BN exports, including $3.8BN in 2013; breakthrough developments which have advanced Intel’s global competitive edge, such as the 8088 processor, Pentium MMX, Centrino, etc. (Globes, January 27).

8.   Lockheed Martin’s Vice President of International Engineering and Technology, John Evans announced a joint investment, with EMC, in Israel’s cyber technologies: “We recognize evolving global needs, as well as the wealth of innovation taking place within Israel and its universities.” Orna Berry, Vice President and General Manager of EMC Israel: “Israel offers a unique combination of talent, innovation and pioneering spirit. We expect this collaboration with Lockheed Martin will help EMC continue to accelerate our important research & development and contribution to Israel’s mission to be a leader in innovation (Jerusalem Post, January 26).

9.  Steve Mills, IBM’s Senior Vice President announced that IBM is establishing a Cyber Center at Ben Gurion University, (Globes, January 28).

10.  Microsoft’s new CEO, Satya Nadella: “The research & development centers in Israel constitutes a strategic factor for Microsoft, enhancing our capabilities inn many areas. Our challenge is to leverage, in a most effective manner, the Israeli manpower (Globes, February 6).”

11.  The French giant, Electricite’ de France (EDF) wishes to participate in the construction of two major Israeli power stations (Globes, January 28).

12.  Altria (previously, Philip Morris Companies) acquired Israel’s Green Smoke (electronic cigarettes) for $110MN (Globes, February 5).

13.  The Israel-China company, ShellCase raised $118MN for its subsidiary, WLCSP, on the Shanghai Stock Exchange (Globes, February 11).  The German giant, SAP, led a $47MN round of private placement by Israel’s Kaltura.  SAP was joined by the Silicon Valley-based Nokia Growth Partners, the Wilton, CT-based Commonfund Capital and Brazil’s Gera Ventures (Globes, February 13).  The Silicon Valley-based Accel Partners andInnovation Endeavors (the private fund of Eric Schmidt, Google’s Executive Chairman) led a $10MN round by Israel’s Aorato.  The London-based Index Ventures and the Silicon Valley-based Sequoia Capital led a $15MN round by Israel’s Adallom.

Wishing you Shabbat Shalom and a rewarding weekend,
Ambassador (ret.) Yoram Ettinger, Jerusalem, “Second Thought: A US-Israel Initiative”
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